Our client is vat registered and wants to purchase a building (to rent out) from a non-vat registered company. Will he be able to claim the vat back?
Important:
This answer is based on tax law year ending 28 February 2016.
Answer:
You have not indicated if the seller is a vendor and whether the property was held for purposes of making taxable supplies. For purposes of the guidance that follows we accepted that the seller is a vendor and will be levying the tax. The next important issue is then whether the purchasing vendor will be using it to make taxable supplies.
In terms of the definition of input tax (in section 1(1) of the Value-Added Tax Act) either the tax levied by the supplier (if registered as a vendor) or the tax fraction of the consideration (if transfer duty applies) will be input tax.
The deduction of input tax can then be made ‘where the goods … concerned are acquired by the vendor … for the purpose of consumption, use or supply in the course of making taxable supplies, or partly so to the extent (as determined in accordance with the provisions of section 17 of the Value-Added Tax Act) that the goods or services concerned are acquired by the vendor for such purpose’ – see paragraphs (a) or (b) of the definition in section 1(1).
In terms of section 17(1) the input tax must be an amount which bears to the full amount of such tax or amount, as the case may be, the same ratio (as determined by the Commissioner in accordance with a ruling as contemplated in section 41A or 41B) as the intended use of such goods or services in the course of making taxable supplies bears to the total intended use of such goods or services. SARS issued a binding general ruling (number 16) that prescribes the turnover-based method of apportionment.
Remember that the input tax (or portion) may only be deducted to the extent that payment has been made – see section 16(3)(a)(ii)(bb).